Is the Stock Market Just a Side Show? Evidence from a Structural Reform

Murillo Campello, Rafael Perez Ribas, Yan Wang

NBER Working Paper No. 20121
Issued in May 2014
NBER Program(s):   CF   DEV

The 2005 split-share reform in China mandated the conversion of nontradable stocks into tradable status. This paper examines the effects of stock markets on corporate outcomes exploiting multiple institutional features of the Chinese conversion program. Using a generalized propensity score matching approach, we identify increases in corporate profitability, investment, value, and productivity as a result of the reform. We also identify changes in firms' likelihood to issue shares and engage in mergers, as well as changes in dividend and capital structure policies. Our findings provide insights on the role of stock markets in shaping corporate activity and on the impact of regulation on economic growth.

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Document Object Identifier (DOI): 10.3386/w20121

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